Rule2023-00944
Competitive Postal Products
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 19, 2023
Effective
February 21, 2023
Issuing agencies
Postal Regulatory Commission
Abstract
The Commission is adopting a final rule concerning the minimum amount that the Postal Service's competitive products as a whole are required to contribute to institutional costs annually. The rule as adopted uses a formula-based approach to annually calculate competitive products' appropriate share of institutional costs. For additional information, Order No. 6399 can be accessed electronically through the Commission's website at https://www.prc.gov.
Full Text
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<title>Federal Register, Volume 88 Issue 12 (Thursday, January 19, 2023)</title>
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[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Rules and Regulations]
[Pages 3313-3315]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00944]
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POSTAL REGULATORY COMMISSION
39 CFR Part 3035
[Docket Nos. RM2017-1 and RM2022-2; Order No. 6399]
Competitive Postal Products
AGENCY: Postal Regulatory Commission.
ACTION: Final rulemaking.
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SUMMARY: The Commission is adopting a final rule concerning the minimum
amount that the Postal Service's competitive products as a whole are
required to contribute to institutional costs annually. The rule as
adopted uses a formula-based approach to annually calculate competitive
products' appropriate share of institutional costs. For additional
information, Order No. 6399 can be accessed electronically through the
Commission's website at <a href="https://www.prc.gov">https://www.prc.gov</a>.
DATES: Effective February 21, 2023.
FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at
202-789-6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Relevant Statutory Requirements
II. Background
III. Basis and Purpose of Final Rule
IV. Final Rule
I. Relevant Statutory Requirements
Section 3633(a)(3) of title 39 of the United States Code requires
the Commission to ``ensure that all competitive products collectively
cover what the Commission determines to be an appropriate share of the
institutional costs of the Postal Service.'' 39 U.S.C. 3633(a)(3).
Section 3633(b) requires that the Commission revisit the appropriate
share regulation at least every 5 years in order to determine if the
minimum contribution requirement should be ``retained in its current
form, modified, or eliminated.'' 39 U.S.C. 3633(b). In making such a
determination, the Commission is required to consider ``all relevant
circumstances, including the prevailing competitive conditions in the
market, and the degree to which any costs are uniquely or
disproportionately associated with any competitive products.'' Id.
II. Background
Pursuant to section 3633(b), the Commission initiated Docket No.
RM2017-1 for the purpose of conducting its second review of the
appropriate share requirement since the enactment of the Postal
Accountability and Enhancement Act (PAEA), Public Law 109-435, 120
Stat. 3198 (2006). In its second review of the appropriate share, the
Commission found that market conditions have changed since the PAEA's
enactment and since the Commission's last review of the appropriate
share.\1\ As a result, in Order No. 4963, the Commission adopted a
final rule implementing a dynamic formula-based approach to setting the
appropriate share.\2\
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\1\ See Docket No. RM2017-1, Order Adopting Final Rules Relating
to the Institutional Cost Contribution Requirement for Competitive
Products, January 3, 2019, at 4-12, 114-170 (Order No. 4963); see 84
FR 537 (January 1, 2019).
\2\ Order Adopting Final Rules Relating to the Institutional
Cost Contribution Requirement for Competitive Products, January 3,
2019 (Order No. 4963). The Final Rulemaking was published in the
Federal Register on January 31, 2019. See 84 FR 537 (Jan. 31, 2019).
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However, Order No. 4963 was appealed by the United Parcel Service,
Inc. and later remanded to the Commission for further consideration by
the United States Court of Appeals for the District of Columbia
Circuit.\3\ The court identified two major aspects of Order No. 4963
for the Commission to clarify on remand. The Commission issued Order
No. 6043, which was a supplemental notice of proposed rulemaking that
addressed the issues identified by the court and provided an
opportunity for interested persons to file initial comments and reply
comments concerning the Commission's third 5-year review of the
appropriate share as required by 39 U.S.C. 3633(b).\4\ In addition, the
Commission issued Order No. 6269, which invited public comment relating
to the Commission's analysis pursuant to uncodified section 703(d) of
the Postal Accountability and Enhancement Act (PAEA).\5\
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\3\ UPS II, 955 F.3d 1038, No. 19-1026, ECF Document No.
1846181, at 1, (issuing formal mandate), June 8, 2020.
\4\ Supplemental Notice of Proposed Rulemaking and Order
Initiating the Third Review of the Institutional Cost Contribution
Requirement for Competitive Products, November 18, 2021 (Order No.
6043). The Supplemental Notice of Proposed Rulemaking was published
in the Federal Register on August 13, 2018. See 86 FR 67882 (Nov.
30, 2021).
\5\ Notice and Order Providing an Opportunity to Comment on the
Commission's Section 703(d) Analysis, September 7, 2022 (Order No.
6269); Postal Accountability and Enhancement Act (PAEA), Public Law
109-435, Title VII, Sec. 703, 120 Stat. 3198, 3244 (2006).
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The Commission received and considered comments with respect to
nearly every aspect of the Commission's findings in Order Nos. 6043 and
6269.
In Section IV., the Commission addresses comments relating to the
Commission's statutory interpretation of the appropriate share
provisions at 39 U.S.C. 3633(a)(3) and (b). After considering these
comments, the Commission has determined not to alter its interpretation
as articulated in Order No. 6043, which the Commission continues to
conclude is consistent with the PAEA's text and structure, as well as
its context and legislative history. See Section IV.
In Section V.A., the Commission addresses comments relating to the
application of the ``uniquely or disproportionately associated'' phrase
from 39 U.S.C. 3633(b) to the Postal Service's accrued costs. The
Commission continues to find that all attributable costs are already
included in the 39 U.S.C. 3633(a)(3) price floor and are furthermore
implicitly considered as part of the formula. See Section V.A.2.b. The
price floors set under 39 U.S.C. 3633(a)(1) and (a)(3) fully ameliorate
any competitive deficit alleged to be unaddressed by the price floor
under 39 U.S.C. 3633(a)(2), and that the use of incremental costs for
purposes of the price floors under 39 U.S.C. 3633(a)(1) and (a)(2) is
sufficient to prevent subsidization of Competitive products. See
Section V.A.3.b. Any further attempt to account for attributable costs
as part of the appropriate share would constitute double-counting of
those costs that would be economically unsound and potentially harmful
to the Postal Service. See Section V.A.4.b. There is no meaningful
relationship between unattributed inframarginal costs and Competitive
products; there are no costs uniquely or disproportionately associated
with Competitive products within currently-existing institutional
costs; and using economically sound measurement is reasonable. See
Sections V.A.5.b., V.A.6.b., V.A.7.b. The arbitrary allocation of
institutional costs to Competitive products would contravene the intent
of the PAEA, would be economically unsound, would degrade the existing
costing methodology, and could harm the Postal Service and consumers.
See Section V.A.8.b.
In Section V.B., the Commission addresses comments relating to the
prevailing competitive conditions in the market and other relevant
circumstances. The Commission confirms that revenue is the appropriate
measure of market size, and that the profitability of competitors is
relevant to assessing the prevailing competitive
[[Page 3314]]
conditions in the market. See Section V.B.2.b. The Commission presents
an updated market analysis and continues to find that the state of
competition in the market for competitive postal services is healthy.
See id.
With respect to comments suggesting that the Commission should
consider the Postal Service's financial losses, the ``non-existence of
a level playing field'' and ``subsidization,'' the Commission explains
why these three potential circumstances are not relevant to this
review. See Section V.B.3.b. The Commission finds that comparative harm
and the balance of risk and actual Competitive product contribution to
institutional costs are relevant circumstances which all weigh in favor
of readopting the dynamic formula-based approach. See id. Finally, the
Commission reiterates its dismissal of comments alleging that the
formula is arbitrary and capricious. See Section V.B.4.b.
In Section VI. the Commission addresses comments regarding the
Commission's analysis pursuant to uncodified section 703(d) of the
PAEA. See PAEA 703(d). In accordance with that provision, the
Commission invited additional public comment regarding Commission
updates to a quantification by the Federal Trade Commission (FTC) of
the net economic effect of federal and state laws that apply
differently to the Postal Service than to private competitors in the
market for competitive postal services, based on subsequent events that
the Commission found affected the ongoing validity of the FTC's
findings. See Order No. 6269. The Commission concludes that the
additional events (beyond those identified by the Commission in Order
No. 6269) raised by commenters are outside the scope of the
Commission's 703(d) analysis. See Section VI.C.
In Section VII., the Commission addresses arguments relating to
each specific type of costs alleged by any commenters to be uniquely or
disproportionately associated with Competitive products. Upon
consideration of each category of costs raised, the Commission
concludes that none of these costs raised by commenters are uniquely or
disproportionately associated with Competitive products and that it
would be inappropriate to alter the formula-based approach to take
these cost categories into account. See Section VII.
In Section VIII. the Commission addresses comments proposing
alternatives to the formula-based approach to setting the appropriate
share. The Commission concludes that UPS's four alternative proposals
would each involve the arbitrary allocation of institutional costs to
Competitive products, and furthermore all suffer from numerous
methodological flaws and inconsistencies with the PAEA. See Sections
VIII.A.3., VIII.B.3., VIII.C.3., VIII.D.3. With respect to comments
that the appropriate share should be eliminated, the Commission
reiterates that it has, pursuant to the discretion accorded to it by 39
U.S.C. 3633(b), elected to retain the appropriate share requirement as
a margin of safety against any possibility of the Postal Service having
an unfair competitive advantage. See Section VIII.E.3.
Based on the analysis provided above and its review of comments,
the Commission readopts its dynamic formula-based approach to
calculating the appropriate share.
III. Basis and Purpose of the Final Rule
The purpose of the Commission's formula-based approach is to
provide an objective basis on which to quantify the statutory
considerations of section 3633(b) in order to determine the year-to-
year change in competitive products' joint minimal capacity to generate
profit that can be contributed to the coverage of institutional costs.
Order No. 6399 at 114.
The formula seeks to determine the Postal Service's overall market
power by measuring its absolute and relative market power. Id. at 115-
117. In order to assess the Postal Service's absolute market power and
its market position, the formula utilizes two distinct components. Id.
The first component is the Competitive Contribution Margin, which
measures the Postal Service's absolute market power. Id. at 115.
Specifically, the Competitive Contribution Margin is calculated by
subtracting the total attributable costs of producing the Postal
Service's competitive products collectively from the total amount of
revenue the Postal Service is able to realize from those competitive
products collectively in a given fiscal year, and then dividing this
result by the total competitive product revenue. Id. The formula
assesses the year-over-year percent change in the Competitive
Contribution Margin to determine how much, if any, the Postal Service's
absolute market power has changed. Id.
The second component of the formula is the Competitive Growth
Differential, which measures the Postal Service's market position. Id.
at 116-117. Specifically, the Competitive Growth Differential is
calculated by subtracting the year-over-year percent change in the
combined revenue for the Postal Service's competitors from the year-
over-year percent change in the Postal Service's competitive product
revenue. Id. at 116. This relative growth is then weighted by the
Postal Service's market share. Id.
Using the above-described components, the Commission's formula is
represented by the following equation:
ASt<INF>+1</INF> = ASt * (1 + %[Delta]CCMt<INF>-1</INF> +
CGDt<INF>-1</INF>)
If t = 0 = FY 2007, AS = 5.5%
Where,
AS = Appropriate Share
CCM = Competitive Contribution Margin
CGD = Competitive Growth Differential
t = Fiscal Year
Id. at 117.
In order to calculate an upcoming fiscal year's appropriate share
percentage (ASt<INF>+1</INF>), the formula multiplies the sum of the
prior fiscal year's Competitive Growth Differential and percentage
change in the Competitive Contribution Margin (1 +
%[Delta]CCMt<INF>-1</INF> + CGDt<INF>-1</INF>) by the current fiscal
year's appropriate share (ASt). Id. at 118. Both components of the
formula are given equal weight. Id. The formula is recursive in order
to incorporate all changes in the parcel delivery market since the PAEA
was enacted and the appropriate share was initially set. Id. at 103.
The formula's calculation thus begins in FY 2007 with a beginning
appropriate share of 5.5 percent. Id. The upcoming fiscal year's
appropriate share will be updated by the Commission each year as part
of the Commission's Annual Compliance Determination, which is performed
pursuant to 39 U.S.C. 3653. Id.
IV. Final Rule
In order to implement the Commission's formula, existing Sec.
3035.107(c) is revised. Final Sec. 3035.1077(c)(1) establishes the
formula which is to be used in calculating the appropriate share and
defines each of the formula's terms. Final Sec. 3035.107(c) states
that the appropriate share of institutional costs to be covered by
competitive products set forth in that rule is a minimum contribution
level. Final Sec. 3035.107(c)(2) establishes the process by which the
Commission shall update the appropriate share for each fiscal year. The
Commission will annually use the formula to calculate the minimum
appropriate share for the upcoming fiscal year and report the new
appropriate share level for the upcoming fiscal year as part of its
Annual Compliance Determination.
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List of Subjects for 39 CFR Part 3035
Administrative practice and procedure.
For the reasons stated in the preamble, the Commission amends
chapter III of title 39 of the Code of Federal Regulations as follows:
PART 3035--REGULATION OF RATES FOR COMPETITIVE PRODUCTS
0
1. The authority citation for part 3035 continues to read as follows:
Authority: 39 U.S.C. 503; 3633.
0
2. Amend Sec. 3035.107 by revising paragraph (c) to read as follows:
Sec. 3035.107 Standards for Compliance.
* * * * *
(c)(1) Annually, on a fiscal year basis, the appropriate share of
institutional costs to be recovered from competitive products
collectively, at a minimum, will be calculated using the following
formula:
ASt<INF>+1</INF> = ASt * (1 + %[Delta]CCMt<INF>-1</INF> +
CGDt<INF>-1</INF>)
Where,
AS = Appropriate Share, expressed as a percentage and rounded to one
decimal place
CCM = Competitive Contribution Margin
CGD = Competitive Growth Differential
t = Fiscal Year
If t = 0 = FY 2007, AS = 5.5 percent
(2) The Commission shall, as part of each Annual Compliance
Determination, calculate and report competitive products' appropriate
share for the upcoming fiscal year using the formula set forth in
paragraph (c)(1) of this section.
By the Commission.
Erica A. Barker,
Secretary.
[FR Doc. 2023-00944 Filed 1-18-23; 8:45 am]
BILLING CODE 7710-FW-P
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</html>Indexed from Federal Register on January 19, 2023.
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